Summarized of the result is as followed
Nothing bad on a full year basis but on a quarterly basis, weakness was seen
For Consumer Electronics (CE), Q4FY18 revenue fell 25.2% from HK$401.1M to HK$300.1M from Q3FY18 and its Industrial & Consumer Electronics (ICE) fell 11.2% from HK$387.2M to HK$343.9M. Total revenue for both segment fell 18.3% from HK$788.3M in Q3FY18 to HK$644.0M in Q4FY18. Nothing surprising for me given that news was already out last month of the fall in revenue for Q4FY18.
So depend which side you are on (optimistic or pessimistic). If you are on the optimistic side probably you will focus on the FY result reaching HK$2853.7M of revenue, a rise of 25.4% compared to FY17 and even breaking the high of HK$2433.3M in FY14. Not to mention the company declared a HK$0.20/share of dividend (final + special) on top of the HK$0.07/share interim dividend declared on November 2017, the first for the company. However, if you are on the pessimistic side, you might want to build a mountain out of a mole in focusing on the weak Q4FY18 result and even possible further weakness in Q1FY19 and Q2FY19. This was so as its Dutch MNC client expects the slow sales will last till 2H2018.
For me, none of the above 2 caught my interest in its latest FY18 result. There are some other facts which I find more interesting and worth noting going forward.
Cash Management
Above is the FY18 cash flow statement, one item that caught my attention was the "Addition of short-term bank deposits". I've checked the FY17 cash flow statement, there wasn't such an item. With that item, Valuetronics as of now has HK$116.256M of money being placed in short-term deposit. I assume this is the management strategy trying to leverage on the rising of interest rate lately. With $0 debt and net cash, be able to put a certain percentage of the cash to earn higher interest (short-term rate definitely higher than normal rate) is probably a sign from the management showing confidence in running the company against the potential weakness in the next 2 quarters of revenue.
Diversification in Revenue
Above is the revenue by shipment destination since FY16. As seen, revenue contribution has been deceasing for North America since FY16 while it increases for both Europe and China & Asia Pacific during the same periods. If that is so, the slow sales experienced from its Dutch MNC in US could be cushioned by Europe and China & Asia Pacific.
Above is the revenue of geographical segments since FY16. Analyzing this breakdown should provide further evidence of its result of diversification. US revenue increased by 19.25% from FY16 to FY18. China revenue increased by 63.02% for the same periods. Poland revenue increased by 165.17% for the same periods. Hong Kong revenue decreased by 2.19% for the same periods. As France, Germany, South Korea, Canada and Netherlands were not consistently appeared in the breakdown for FY16 to FY18, all these will be grouped under the Other Countries category. Thus, Other Countries revenue increased by 110.88% for the same periods. US has been the biggest revenue contributor in term of absolute figure for those periods but looking at the figure it appears to be saturating too. Therefore, the weakness in US due to the smart home lighting products might be over-concerned. China in particular is fast catching up the US in term of absolute figure and the rest of the destinations (countries) also fared better than US in term of growth over the same periods. As such, the slow down in US could be cushioned by other countries due to its diversification.
The above breakdown also brings up a point, the recent tech slow down is it only localized to US or globally ? Should be it globally, the above 2 figures don't seem to justify that.
While many (analysts and investors) might be debating should it be a good set of result or fear for the worse, the thing I saw from its result is how strategic the management can be and this is the type of company that make you feel the worth in investing.
